Small Biz Takes Cue From Big Firms By SHELLY GARCIA Senior Reporter For years people scrimped and saved to buy a business, then burned the midnight oil to build it. Today, many trade with shell companies, finance with equity partners, merge and acquire, even hire consultants. Not just the lexicon, but the customs and methods of small business are changing. Now more than a rugged individual with a dream, small business has evolved into an enterprise that mirrors corporate America with business plans, market analysis, financial projections and reports and management strategies. You might say small business is becoming big business. It just has fewer zeros. “People are becoming much more sophisticated in the way they are coming together with different companies and partnering with different industries to make the best use of the supply chain,” said Helen Han, senior program manager for the Management Development Program for Entrepreneurs at the Harold Price Center for Entrepreneurial Studies, part of the John E. Anderson Graduate School of Management at UCLA. “People are not just looking at the actual operation anymore. They’re looking at the need and fit and (how) to be much more flexible to succeed in a very competitive environment.” To be sure, the restaurant chef longing for her name on the door, the enterprising trader with product sources abroad, the mechanical whiz or seamstress with a passion to design still make up a large portion of small business owners. But even these more traditional entrepreneurs are often finding that, as the market becomes more complex and competition grows more fierce, they need business tools that are up to the task. “I recently had a case where the customer spent about $15,000 on a consultant to help him,” said Oscar Monteagudo, assistant vice president and business development officer in the Woodland Hills branch of Wells Fargo. “Lately I’ve seen more and more people going out and hiring consultants to do their business plans.” Some say the changes are the result of differences in today’s entrepreneurs more likely to be MBAs, or at least college grads, disillusioned by the lack of corporate job security than to have come up from the streets with healthy servings of common sense and ambition. Others point to the changing marketplace and, in particular, the advent of technology, which now plays a pivotal role in most business, high tech or not. Take the case of BizInk, a Woodland Hills online printing company formed from a partnership with a technology consulting firm. BizInk founder Scot Feinberg was running a small printing company when he realized that he could not compete with the large chains offering such services. Feinberg figured that if he could offer his services online, BizInk would have a competitive advantage, so he approached technology consultants eCybersuite, another small business, to computerize the operation. Feinberg planned only on buying eCybersuite’s expertise but ultimately struck up a deal under which eCybersuite’s founder became a full equity partner in BizInk. “I think what changed his mind was that the technology is not simple,” said Tom Pelino, owner of eCybersuite and president of BizInk. “If you don’t know what you’re doing you can really waste a lot of money, and that could be devastating to a small business.” Pelino sees further potential to expand his consulting business with other companies down the road as a result of the technical expertise eCybersuite can bring to the table. “I think 10 years ago, if you had an idea, you jumped out there on your own and did what you had to do to make it happen,” he said. “Today there’s more of trying to find someone to partner with or trying to find that synergistic partner who can bring more value to the table.” Financing small business too is changing. While many still use personal credit cards for startup capital, there are a growing number of entrepreneurs adopting far more sophisticated strategies. Three years ago, Clinton J. Sallee, president and CEO of Sitestar Corp., an ISP holding company based in Encino, wanted to get in on the technology boom but had neither the technical background nor the cash to do it. So Sallee acquired a failing publicly traded company in a reverse merger, sold the assets back to the company and used the stock shares in the shell company to start buying up businesses. “I was a former investment banker with zero operating experience,” said Sallee. “I’d never managed anyone. I didn’t have an MBA. And I didn’t have technology experience. The only way to go about it on any scale was to pursue the approach that we pursued.” To date Sitestar has acquired four Internet service providers in the mid-Atlantic and Southeast regions. Sallee oversees finance, operations and administration while the former managers of the acquired businesses continue to run the day-to-day operations. Now Sallee says he wants to diversify. “What we’re doing now is we’re trying to focus our efforts a little closer to home,” said Sallee. “We’re looking for companies that are not Internet-related, in manufacturing or distribution located here in Southern California, that we can acquire and continue to build,” he said. With its stock price down to the $.04-cent range from the mid-$3 range when Sitestar launched, Sallee is the first to concede he’ll likely have to pay cash for future acquisitions, a step the company, with positive cash flow of $1.2 million, is prepared to take. Those who don’t have the benefit of training in finance and M & A; used to avail themselves of the free advice and services provided through government programs like those sponsored by the Small Business Administration. But as new and alternative financing for these firms becomes available, entrepreneurs are increasingly seeking out the services of paid professionals to assist them. “I have a client who’s going to acquire more than one company,” said Ray Mendoza, who just launched his own consultancy, Cambria Capital Partners, to provide financial advisory services to small businesses. “We’ve been asked to advise on an interest rate hedging policy. Small business can’t afford a full-time chief financial officer that can focus on these issues, but they can afford someone one day a week.” Many more too are enrolling in educational programs like those offered by UCLA’s Price Center. Some have run small businesses for years, and now find they need new skills. Others are relatively new entrepreneurs. But where entrepreneurial talent was once enough to carry a small business owner for many years, companies now are likely to need professional management expertise far earlier in the cycle, said Price Center manager Han. “It’s not like the engineer who has come up with a product. It has to be a total concept,” said Han. “It has to be a whole myriad of talents now, and I think in a way they reach that threshold much more quickly because of the competitiveness of the market.”
